Determining the value of your company is vital regardless of whether you plan to sell your business or are contemplating a buyback by your partners. The most commonly used method estimates your company’s value by calculating the amount of income it’s expected to generate over time.
Another method is to add up all your assets (such as equipment, real estate, and so on) and subtract your liabilities (such as outstanding loans and debts). This method is helpful for investors who want to know the current worth of your business.
You can also determine the value of your company by looking at earnings or revenue. A standard practice is to multiply the company’s EBITDA (earnings prior to interest, taxes, amortization, and depreciation) by a range of two to six. This is a good option for companies of a smaller or mid-sized size. It is important to understand that multiples depend on the particular industry and characteristics of your company.
While a few rules of thumb can be helpful, they don’t give you the complete picture you need to assess the value of your business to sell. That’s why many experts recommend consulting valuation professionals who understand the intricacies of business value and assist you in weighing your options. They will take into consideration the past profit stability as well as liabilities and assets and growth runway in order to provide an accurate estimate. They can also offer advice on how to adjust your financial structure or operations to increase valuations. To find the best expert to work with consult your accountant, business adviser or a reputable business broker.
